President's Column

Friday, August 3

Washington's tax structure is working

All eyes were on Seattle this spring as the city council passed — and then quickly repealed — a head tax on employees.

The $275 tax per employee, which would have been levied annually on roughly 500 of the city’s larger employers, was intended to raise money to combat the city’s homelessness crisis. But the idea of placing a tax on job-creation left many observers shaking their heads.

The city thankfully reconsidered the idea before it took effect, but larger discussions about tax policy in Washington continue to reverberate. What type of taxes, and how much, should Washington place on its families and employers? Does the state’s tax structure need an overhaul?

In July, the state’s Work Group on Tax Structure Reform held a series of public meetings in Spokane, Yakima and Vancouver to solicit feedback on some of those questions. The temporary work group, authorized by the Legislature in 2017, is looking for ways to improve the tax system.

At the same time, advocacy groups are attempting to build support for a capital gains tax or a state income tax, something that has come up frequently over the years but has yet to win support from voters. The idea of an income tax in Washington has proven to be as popular as the idea of a sales tax in Oregon.

Some who favor a capital gains tax or income tax used the work group’s public meetings as an opportunity to make their case.

But based on the outcry that Seattle’s attempted head tax generated, it’s not clear that a new tax would be any more popular now than it has been in the past, even in parts of the state that are more open to new taxes. The cumulative effect of higher property taxes, a new soda tax, higher car tab fees, and a potential local improvement tax (LID) to pay for waterfront improvements in Seattle may have stretched the public to its limit.

It’s also not clear that a new tax is needed. The current tax system is not perfect, but judging by the health of the economy, it is working. Under the current system, Washington has a vibrant, growing economy and tax collections are growing.

Consider that since 2005, the state has added jobs at higher than the national average. Last year, personal income growth in Washington was the highest in the nation. Washington once again led the U.S. in GDP growth in the first quarter of 2018. The individual tax burden is relatively low compared to other states. And the July revenue forecast projected an additional $41 million in state revenue over the previous forecast.

It’s true that many rural parts of the state have not enjoyed the same economic growth as the urban areas, and some sectors of the economy — notably manufacturing — are underperforming. But overall, the Washington economy is dynamic and relatively healthy.

Proponents of an income tax or capital gains tax suggest that Washington’s tax structure is unfair because it is the “most regressive” in the state. But that claim is based on a deeply flawed 2015 report by the Institute on Taxation and Economic Policy. The Washington Research Council examined the claim and found that Washington’s tax system, like every other state, is progressive when viewed in the context of combined federal, state and local taxes.

Rather than looking only at making taxes more progressive, it’s helpful to look at ways to make spending more progressive and efficient. We can reduce poverty and increase upward mobility by investing in education, training and other efforts that employers are working on.

This spring, all eyes were on Seattle. In January, the focus will shift back to Olympia for the start of the 2019 legislative session.

As lawmakers and others consider Washington’s tax structure, we hope they would focus on maintaining our economic momentum and making improvements that strengthen the economy in key sectors that are underperforming and in the parts of the state that are missing out on the recent growth.

In Seattle — and every other community in Washington — we must continue growing the economy and encouraging jobs.